Financial Markets Daily

Financial Markets Daily Fixed Income Negative sentiment from weaker than expected Chinese PMI last week and rout in Chinese equity is finding its way into the commodity space and eventually into the developed world. Oil fell another 5% yesterday which in turn led US stock market to close in red and US HY corporate bonds to lose ground. Fearing the contagion from China, long term inflation expectations became more subdued leading the 10yr UST yields to close 3bps lower at 2.15%. That said, 2yr UST closed a bp higher at 0.67% after the US reported a stronger than expected increase in personal income. Thanks to the support of ongoing QE, reaction of European debt markets to developments in China was more muted. Eurozone sovereign yields closed mixed with Bund closing 2bps lower at 0.63% while that on Spain and Portugal rose marginally. FM Daily 4 August 2015 High yield cash corporate bonds in US and Euro suffered due to falling commodity prices, however most investment grade bonds benefited from fall in the benchmark yields and closed up in price yesterday. Emerging markets bonds traded a tad weaker on the back of weakening currencies in most emerging market economies, in addition to the negative impact of the falling commodity prices on the commodity exporting nations. OAS on USD EM Sov and USD EM Corps closed wider by 4bps each to 303bps and 423bps respectively. Soft sentiment prevailed in the credit derivative space with CDS levels on US IG, Euro Main and Euro Crossover closing at 72bps (+1bp), 63bps (+1bp) and 291bps (+6bps). GCC Credit universe had a mixed day yesterday. Energy related high yield bonds such as MILSRV18s and TPZMAR18s and some very short dated bonds suffering from pull-topar effect such as BBK15s were the ones that saw yield widening while most high grade bonds benefited from falling benchmark UST yields and closed higher in price. BUAEUL index closed at 109.28 (+0.09), YTW 2.74% (-2bps) and OAS of 146bps (unchanged). Anita Yadav Head of Fixed Income Research +971 4 230 7630 anitay@emiratesnbd.com Aditya Pugalia +971 4 230 7802 adityap@emiratesnbd.com Edward Bell Commodity +971 4 230 7701 edwardpb@emiratesnbd.com Mohammed Ali Hadi Al-Tajir +971 4 609 3005 mohammedtaj@emiratesnbd.com HSBC s strong result announcements and sell-off of assets was heavily in news yesterday. We see the sale of non-core assets and the possibly to relocate the HQ as largely credit neutral at this stage. Primary market in the region is still lethargic with no hard currency deals in the pipeline. However National Commercial Bank yesterday did a SAR 2billion Tier1 issue in the Saudi local currency market. Equities Global equity indices had a mixed close yesterday. European indices were generally in green with the DAX and Euro Stoxx closing up by 1.19% and 0.96% respectively. Across the Atlantic however, the US equity markets did less well with the Dow Jones finishing 0.52% lower, while the NASDAQ fell by 0.25% and the S&P500 declined by 0.28%. Asia has opened with mixed results. Presently, the Nikkei is down 0.11% while the Shanghai comp is up 1.34 % in early morning trades. Yesterday, despite the price of Brent falling by 5.15% to 49.52, the regional equity markets did not suffer. The Saudi Tadawul closed up 0.2% while the DFM rose 0.4%. www.emiratesnbdresearch.com

FX Yesterday, the USD gained on the other majors. The biggest mover was the USDCAD which rose nearly 0.5% from is open of 1.3096 to close at 1.3156. The dollar was lent strength by yesterday s US Personal Income being stronger than expected (0.4% vs 0.2%) and by falling oil prices. This morning, the AUD has begun to regain some strength and advance from a near 6 year low after the RBA decided to maintain rates at 2.00% and removed comments regarding further depreciation being both likely and necessary. Presently, the EURUSD is at 1.0941, the USDJPY is at 124.07 and the GBPUSD is at 1.5591 while the USDCAD is at 1.3167. Globally, not much information is expected today in terms of data. The highlights of today are the RBI rate decision, the UK Construction and the US Factory Orders. Regionally, things are more interesting with the Emirates NBD PMI data for Egypt, Saudi Arabia and the UAE all due for release this morning. Commodities If we thought oil markets had got off to a bad start in July, August is shaping up to be even worse. ICE Brent futures fell over 5% and closed below USD50/b yesterday, their lowest level since the depths of the sell-off in January. NYMEX WTI also collapsed, falling over 4% to around USD45/b. As for catalysts, weak PMI data coming out of China, elevated production data from OPEC and another rise in the US oil drilling rig count have all helped to weigh on the outlook for oil prices. For Brent, the market is now just 10% above its year-to-date (ytd) lows and considering the current sentiment in the market, retouching those levels appears within reason. For WTI the spread to ytd lows is even narrower. It is becoming increasingly difficult to find signs of positivity for oil markets, particularly as the market receives more regular updates on supply, which have been almost uniformly bearish this year, than it does on demand, which has been gathering pace, albeit slowly. Platinum and palladium closed at multi-year lows yesterday, dragged down by a 0.8% decrease in gold prices. Persistent USD strength is helping to keep gold near five-year lows. Net investor interest in gold remains negative, as tracked by the CFTC, and gold ETF holdings have fallen three consecutive months in a row, down 3.7% for July.. MENA News Industry Industry Qatar reported a Q2 2015 net profit of QAR 1.5bn, beating analysts estimates of 1.13bn by 32.7%. (Bloomberg) Real Estate Mazaya Qatar Real Estate reported a H1 2015 net profit of QAR 59.3mn (+8% y/y). (Bloomberg) Page 2

Markets in Charts Global Bond Yields 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Aug-14 Nov-14 Feb-15 May-15 Aug-15 10y UST 10y Bunds 10y Gilts % Change in Majors vs USD (24 hours) JPY -0.136 GBP -0.224 CHF AUD EUR -0.300-0.301-0.310 NZD -0.440 CAD -0.524-0.600-0.500-0.400-0.300-0.200-0.100 0.000 UAE Liquid Bond Index 3.0 2.8 2.6 2.4 2.2 180 160 140 120 2.0 100 Feb-15 Mar-15 May-15 Jun-15 Aug-15 Yield to Worst (%, bid) Option Adjusted Spread (rhs, bid, bps) Global Equity Indices MICEX -0.3% Bovespa -1.4% Nifty 0.1% Shanghai -1.1% Stoxx 600 0.8% Nikkei -0.2% Cac 40 0.8% Dax 1.2% FTSE 100-0.1% S&P 500-0.3% -2% -1% 0% 1% 2% MENA Equity Indices Madex 0.7% Qatar Ex 0.9% Muscat -0.9% Bahrain Bourse -0.1% KWSE -0.4% EGX -0.9% Borsa Istanbul -2.2% Tadawul 0.2% ADX 0.6% DFM 0.4% -3% -2% -1% 0% 1% 2% Commodities 120 1400 100 1300 80 1200 60 1100 40 1000 Aug-14 Nov-14 Feb-15 May-15 Aug-15 ICE Brent Futures (USD/b) Gold (USD/troy oz, rhs) Source: Bloomberg, Emirates NBD Research Page 3

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Emirates NBD Research & Treasury Contact List Emirates NBD Head Office 12thFloor Baniyas Road, Deira P.OBox777 Dubai Aazar Ali Khwaja Group Treasurer & EVP Global Markets & Treasury +971 4 609 3000 aazark@emiratesnbd.com Tim Fox Head of Research & Chief Economist +9714 230 7800 timothyf@emiratesnbd.com Research Anita Yadav Head of Fixed Income Research +9714 230 7630 anitay@emiratesnbd.com Aditya Pugalia +9714 230 7802 adityap@emiratesnbd.com Mohammed Ali Hadi Al-Tajir +9714 609 3005 mohammedtaj@emiratesnbd.com Khatija Haque Head of MENA Research +9714 230 7803 khatijah@emiratesnbd.com Jean Paul Pigat Senior Economist +9714 230 7807 jeanp@emiratesnbd.com Edward Bell Commodity +9714 230 7701 edwardpb@emiratesnbd.com Athanasios Tsetsonis Sector Economist +9714 230 7629 athanasiost@emiratesnbd.com Sales & Structuring Group Head Treasury Sales Tariq Chaudhary +971 4 230 7777 tariqmc@emiratesnbd.com London Sales James Symington +44 (0) 20 7838 2240 jamess@emiratesnbd.com Saudi Arabia Sales Numair Attiyah +966 11 282 5656 numaira@emiratesnbd.com Egypt Samy Safwat +20 22 726 5050 samysafwat@emiratesnbd.com Singapore Sales Supriyakumar Sakhalkar +65 65785 627 supriyakumars@emiratesnbd.com Group Corporate Affairs Ibrahim Sowaidan +9714 609 4113 ibrahims@emiratesnbd.com Claire Andrea +9714 609 4143 clairea@emiratesnbd.com Investor Relations Patrick Clerkin +9714 230 7805 patricke@emiratesnbd.com Page 5